Qualcomm, Inc. PT Slashed By BMO, Estimates Lowered

Qualcomm, Inc. (NASDAQ:QCOM) remains a great stock and its valuation is still attractive. But BMO Capital Markets analysts Tim Long and Alex Spektor lowered their price target on the stock from $90 to $88. The research firm has also reduced its FY2014 EPS estimate from $5.20 to $5.15 and FY2015 estimate from $5.75 to $5.72. Anyway, BMO Capital Markets maintains its Outperform rating on the stock.

Why BMO cut its PT for Qualcomm

The reduction in price target and estimates comes after handset industry checks suggested weaker smartphone sales at Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930). The overall handset industry growth slowed in the second quarter. The much-hyped Galaxy S5 couldn’t do much to revive growth. But the handset industry is set to see solid growth in second half of this year with the release of the new iPhone.

BMO Capital Markets found that the total royalty device sales (TRDS) have declined mainly due to weaker sales at Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930), though other smartphone vendors reflect slightly better views. Analysts sad that the Korean electronics giant is tracking worse than they had expected for the second quarter. BMO Capital Markets has lowered its Q2 TRDS estimate from $66 billion to $61.7 billion and Q3 estimate from $70.2 billion to $65.1 billion.

Qualcomm to keep dominating the chipset business

The research firm now forecasts 14% growth in 3G/4G smartphone units in 2014 and 13% in 2015, down from the previous estimate of 18% and 15% respectively. 3G/4G ASP is expected to tumble 6% in 2014 and 2015 each. BMO Capital Markets expects the royalty rate for Qualcomm, Inc. (NASDAQ:QCOM) to remain at 3.1% going forward. The TRDS is likely to see a high-single digit growth this year, and that rate is sustainable over the next few years.

However, Qualcomm, Inc. (NASDAQ:QCOM)’s chipset unit sales are expected to remain strong. BMO Capital Markets says that the San Diego-based company’s 3G/4G market share will remain at 71% in FY2014 and FY2015. Analysts noted that Qualcomm valuation is still attractive given positive cash return to shareholders and higher than 10% of earnings growth.